The Housing Bubble

The Mercury News reports from California. “The wave of foreclosures sweeping Santa Clara County has hit its Latino residents the hardest. The epicenter of the foreclosure crisis is San Jose’s East Side. ‘It was great giving people their American dream,’ said Dolores Marquez, a long-time East Side resident. ‘But God, how they hooked them in and snatched it away.’”

“‘There are tons of houses on my block that haven’t sold,’ said Veronica Frausto, a county social worker and single mother who bought her house for $612,000 in 2005. ‘They have signs up, and it’s affecting the value of my home as well. It’s ‘price reduced,’ ‘price reduced.’”

“That has trapped people like Frausto, who is unable to refinance her no-down-payment loan because of the drop in home prices. She is renting rooms and working with her lender to try to avoid foreclosure.”

“Girlie Bass…is trying to get her lender to take back the ‘fixer-upper’ on Aetna Way in San Jose she bought for a borrowed $615,000 in 2004. ‘I just want them to release me from the mortgage. Take the house. I don’t care if I get a dime out of it,’ said Bass. She said her loan payment is now $6,497 a month, far outstripping her and her husband’s ability to pay.”

“‘Most of what I’ve seen is the client cannot afford the home due to the fact they probably should never have been put into that loan to begin with,” said according to Marlene Santiago, Neighborhood Housing Services Silicon Valley’s bilingual foreclosure counselor.”

The Modesto Bee. “Another foreclosure record was set in November as 1,336 properties were offered to the highest bidder on the courthouse steps in Modesto, Merced and Stockton.”

“Now here’s the real surprise: Only 17 of them sold, despite lenders offering deeply discounted prices.”

“More times than not, no one bids. That’s because foreclosed homes typically have unpaid mortgage debt far in excess of their current value. When no bidder is willing to pay off that debt, lenders usually get stuck owning the homes.”

“That happened 411 times in Stanislaus County last month, sticking lenders with more than $139 million in unpaid mortgages, according to ForeclosureRadar.”

“Two weeks ago, Dave Rhodes of Oakdale bid $1 over the starting price for a 1,356-square-foot home in Modesto. He was the only bidder and bought the house for $163,181, even though the lender had been owed about $264,000. ‘I’m not a big spender. I’m a bottom feeder,’ said Rhodes.”

“Competitive bidding is rare, however, even with discounted starting prices. Example: An Oakdale home on Ranger Street sold new in 2006 for $610,000. It went into default with an outstanding loan balance of $530,892. Last month at the foreclosure auction, the starting price was $395,000. No one bid.”

“Also last month, a Manteca home on South Sonora Avenue that had an outstanding loan balance of $487,956 was offered for a starting bid of $331,500. No one bid.”

“And in Merced, a home on West 22nd Street with an outstanding mortgage of $279,785 was offered at $153,000. No one bid.”

“In San Joaquin County last month, for instance, 664 foreclosed homes went to auction, but only eight were sold to bidders. Lenders took back 656 houses with unpaid debts of more than $245 million. In Merced County last month, 253 homes went to auction, with only one receiving bids and being sold. Lenders took back the rest with unpaid debts of nearly $88.4 million.”

“Statewide, 12,282 properties went to foreclosure auctions, but only 321 were sold to bidders. Lenders took back the rest, which had unpaid debts of nearly $4.8 billion.”

“Alliance Title Co. went out of business, laid off all its employees and closed its doors Thursday. At least 30 employees in Stanislaus County, plus hundreds more elsewhere in the state, lost their jobs with less than one day’s notice.”

“Escrow transactions dropped dramatically the last two years. In August 2006, Alliance processed 715 transactions in Stanislaus County, but that declined to 348 in August 2007.”

“Other Northern San Joaquin Valley title companies also have seen transactions decline, offices close and employees laid off.”

“‘The industry as a whole is just awful right now,’ said Suzanne Robinson, office manager for First American Title, in Modesto. ‘There’s just not enough business to sustain all the title companies here.’”

The Record Searchlight. “An employee who answered the phone earlier Thursday said Alliance is closing all 230 of its offices in California. The company’s Web site, which shut down Thursday, said Alliance does business in 34 counties in California.”

“Bob Martin of Summit Mortgage in Red Bluff said the chilled housing market had everything to do with Alliance Title’s demise.”

“‘More people are losing their homes….We are in the worst real estate market in 20 years,’ Martin said. ‘A title company has to sell title insurance policies to stay alive. It’s the lack of business; it’s a dead market.’”

The Orange County Register. “From Anaheim offices, Peter Ganahl runs eight lumber yards around this region that bear his family’s name. And he’s lucky that the harsh housing market debacle has only made a minor dent in his business. His 2007 sales will be off maybe 8 percent.”

“Ganahl knows he could be supplying big builders, who’ve largely stopped construction. But he also knows his niche of supplying smaller contractors won’t be immune from a slump. ‘We just live a little further out on the curve,’ he says of a construction downturn that he describes as ‘just shocking.’”

“In the summer of ‘06, Ganahl saw it coming. Not at his own cash registers. But in talk in his industry of how demand for lumber from big builders seemingly slumped overnight. ‘It was like a door was shut,’ Ganahl says.”

The Sun Post. “Three developers that sued the city in August over fees on new housing projects will ask the City Council next week to extend their homebuilding reservations in Manteca an extra two years.”

“In the face of falling home prices and a glut of unsold homes in the city, developers hope to delay their subdivision plans to avoid putting more homes into an already oversupplied market.”

“All three developers are asking for an extra two years to use the building reservations they purchased in 2005, 2006 and 2007, as well as those that are promised to them in 2008 and 2009.”

The Press Enterprise. “Plummeting home construction and declining growth in global trade that feeds the cargo industry likely will drive Inland Southern California into a recession next year, the first in decades, said two economists who closely watch Riverside and San Bernardino counties.”

“‘My instinct is that we could well end up with negative job growth next year for the first time in my 43 years of studying this economy,’ said Redlands-based economist John Husing.”

“Acknowledging that he usually is ‘the eternal optimist,’ Husing said he sees disturbing signs that 2008 could be the first year that the Inland region lags behind the state and nation in job growth since at least 1983 — the earliest year for which comparative data is available.”

“Residential construction in Riverside and San Bernardino counties soared from 21,990 homes in 2000 to a peak of 52,696 in 2004, then fell to an estimated 20,300 homes in 2007, according to the Construction Research Industry Board.”

“He expects year-end numbers from the State Board of Equalization to show that Inland retail sales declined in 2007, which would be the first time that happened since 1991. The region’s retail will continue to weaken in 2008, he said.”

“‘Evidence is scattered, but the picture it is beginning to form is sort of a nightmare scenario,’ Husing said.”

The San Gabriel Valley Tribune. “Despite the nationwide housing woes, homes in the city’s new development are selling, albeit slowly. The Rosedale community has sold 75 of the 95 homes available, said Byron de Arakal, spokesman for Azusa Land Partners, the project developer. Fifty families have moved in so far.”

“The community, which will have 1,250 homes when complete, opened to new residents in April.”

“But some aren’t the conventional single-family dwellers. Many home buyers are finding new ways to purchase in a regional market where the average price approaches a half-million dollars. Living with parents or other family members is conventional in some cultures, experts say, but some new homeowners are finding that such an arrangement works for them financially as well.”

“‘Some cultures are accustomed to families teaming up to obtain their goals,’ said broker Tom Adams. Adams said that as home prices have climbed, he has noticed an increase in prospective buyers putting additional family members on house titles to help them qualify for a loan.”

“Joy Rodpai-Parham said her home cost more than $600,000. She said the couple almost purchased a home in Rancho Cucamonga for $400,000 before showing her mother the four-bedroom Rosedale home.”

“‘We’ve all lived in Azusa for 15 years or so,’ she said. ‘My mom didn’t want us moving all the way out there, so she said, ‘Hey, we’ll help each other out.’”

“Even with all the adults in the house working, the Parhams said they still have to watch their spending. ‘We’re watching our expenses,’ Joshua Parham said. ‘Weekends are not as high class as we might like.’”

“You’ve got to work really hard for this,’ Rodpai-Parham said. ‘It just feels like I’m able to have a nice place for (my daughter) to live in.’”

The Recordnet. “Existing home sales in San Joaquin County rose last month from October, making it the second consecutive monthly increase in a season when sales usually fall off. The median sales price also slid last month to $310,000, down 20 percent from $388,000 a year ago.”

“The majority of sales and pending sales reportedly are foreclosure houses, more than 2,000 of which have piled into the residential market since just the beginning of the year. Brokers and agents said that those foreclosures are clogging up the market and most of the demand for traditional resale homes as would-be buyers watch prices slide.”

“‘I still think September was the bottom of the sales market,’ said Jerry Abbott, president and co-owner of Coldwell Banker Grupe, Stockton.”

“Meanwhile, the latest monthly report by the Construction Industry Research Board indicated that a total of 94 building permits were issued last month throughout San Joaquin County. That was the first month that building permits totaled beneath the 100 mark this decade. The previous low was 105 in October.”

“‘Nobody’s buying now, clearly,’ said Greg Paquin, president of the Gregory Group in Folsom.”

“Central Valley builders are increasingly slowing or shutting down projects in the slow market, hoping to ride out the slowdown with a few sales, he said. The new-home market probably won’t turn up until 2009, Paquin said.”

“Builders will continue reducing prices until people start buying, he said. ‘There will come a point when builders will be saying, ‘We’re getting enough interest at this point that we’re not going to drop prices any more,’ he said.”

Readers sugested a topic on the spring housing market. “Speculating on what will happen after the New Year. I think we’ll see some real capitulation and 2008 will be the year that was. Of course, elections will play into all this. Can ‘they’ (TPTB) keep it all gamed until the elections are a done deal? Can capitulation be staved off until after the elections?”

One picked a date. “As we all know, everything will be just fine when Super Bowl Sunday comes and goes…. Have a cookie and you’ll feel right as rain….’

Another posted, “Hope will be way up there for the first few months - waiting for the spring selling season. A lot of people here have talked about a dead cat bounce on home sales. Anyone think it is up for this spring, or is it too early?”

One points at inventory. “In the past month inventory in my town went down from 121 to 98 this morning. I’m predicting come Spring the inventory will see highs like never before. The quantity of houses that sell won’t matter to me so long as the prices go down.”

One concurs, “I’m seeing the same change in inventory almost everywhere. The inventory is still up a net 30% since 2/27/07 though.”

Another adds, “Same here in the Mid-Lands of South Carolina, the used house pitch books in the grocery stores are much thinner. I certainly see a flood of ‘new’ listings come spring. Just about everyone around here buys into the RE BS lock, stock & barrel.”

One noted the time of year, “I’m also seeing a decline in inventory. Some is probably the ‘holiday effect.’ But I’m seeing a lot of homes in the MLS are also for rent on Craigslist, so I presume a lot of the ‘dropped inventory’ went to rentals. Anecdotally I’ve seen a lot of people who can afford their house and don’t have to sell are taking them off the market, some until spring, some indefinitely.”

One saw this fallout, “So, let them take it off the market for the ’spring sale.’ All it means is they have the carrying costs for 3 or four extra months before they try again…just increases the financial pressure to unload that sucker. It’s all good.”

One cited cause and effect, “IMO, sales will pick up when prices stop falling.”

Another added, “Sales will pick up when we come off the insane fantasy prices by another 40-50%.”

One thinks it will take longer, “I think, with all the candidates promising in one form or another to keep house prices propped up (an obscene notion, in my opinion), it won’t be ’til 2009 that the correction intensifies.”

US News & World Report. “Until a few weeks ago, the relentless whack, whack, whack of the construction crews down the street from Randy and Lacy Sullivan’s Colorado home was a constant reminder of the competition the father and daughter face as they try to sell her three-bedroom house before the bank forecloses on it.”

“‘Why are you people still building?’ Randy asked the construction supervisor for Richmond American Homes recently. ‘You’ve already got all these houses on the market.’”

“Lacy paid $312,000 last year for the home in the 12,000-lot Reunion development northeast of Denver. Brand-new versions of the same house now sell for about $280,000— ‘and that’s with the finished basement and the granite countertops,’ says Randy.”

“Unable to make the $2,200-a-month payments, he and his daughter had to lower their asking price to $255,000. ‘I told them, ‘You’re nuts! You’re just cutting your own throats in the end!’”

“With few prospects for the undeveloped land that builders hold, ‘the only way to stay in business is to build a house on it, then sell it at cost,’ says mortgage banker Lou Barnes.”

“Upwards of 10 percent of homeowners in the Reunion area now face foreclosure and eviction. That introduces an even lower priced competitor into the market: banks desperate to unload foreclosed homes for whatever they can get.”

“The result, as in similar developments across the nation, is a trail of empty houses, unkempt yards, and abandoned lots, along with a corrosive database of depressed ‘comps’ that drag down property values even further and force those who remain, from equity-deprived neighbors to increasingly property-tax-poor local governments, to prepare for the worst.”

“One builder, Lennar, sold a dozen houses in Reunion to a single investor. This month, it also signed a deal to sell thousands of undeveloped lots in Colorado and elsewhere to Morgan Stanley Real Estate at 40 cents on the dollar, infuriating neighbors and competitors alike.”

“Doreen Jaress, an entrepreneur and real-estate investor from California, figured she and her husband would live for a while in the Tuscan-style home she bought last year for $1.6 million, then sell at a profit. But her ‘city boy’ husband ‘could never get his arms around living out here,’ Jaress says.”

“She put the house on the market in August—plenty of time before her three-year-option adjustable-rate mortgage resets.”

“Unfortunately, that was shortly after Jaress’s other next-door neighbor tried to short-sell the 6,500-square-foot home he had bought for $1.8 million. Meanwhile, a builder down the street listed a comparable home for just $1.17 million.”

“Last month, Jaress planted a ‘for sale by owner’ sign in her front yard and offered owner financing. ‘I don’t believe discounting is the answer,’ she says of her $1.7 million asking price. ‘It’s the terms.’”

The St Petersburg Times reports from Florida. “The median sales price of single family homes in Pinellas County dropped 14 percent year over year. Prices fell to $185,000 in November from the $215,000 recorded a year earlier. Pasco County came out even worse, showing an 18 percent median home price decline, to $170,000 last month from $208,000 in November 2006.”

“It was the worst year-to-year home price drop in at least a decade, though statistics don’t go back far enough to prove whether it rivals declines in earlier housing slumps.”

“‘Every neighborhood’s stressed. There are no exceptions,’ said St. Petersburg Realtor Bunni Longwell.”

“Pinellas sales were off 22.6 percent over the year. Pasco and Hillsborough home sales plunged by about a third in the same period.”

“At the heart of the price drop is the massive inventory of homes on the market. More than 40,000 houses and condos clog the listings in Pinellas, Pasco and Hillsborough. Investors get most of the blame. They over-stimulated new home construction through 2006 and dumped the surplus onto the market.”

“Pasco’s condo scene illustrates the dilemma: Two years ago 43 of 153 condos on the market sold in November. This November’s sales were nearly the same - 41 - but listings had ballooned to 1,301.”

The Herald Tribune from Florida. “The downturn in the economy, spiking property taxes,, the rising cost of living and aggravations associated with population growth have Floridians feeling worse about their state than they did a year ago, a Mason-Dixon survey shows.”

“Forty-three percent of Floridians now feel their quality of life is declining, up from 36 percent last year, the survey said.”

“Thirty-three percent said they would not encourage a friend or relative to move here, while 20 percent of the 1,200 people surveyed said they are seriously thinking of leaving.”

“With the real estate and construction industries in the doldrums, retail sales dropping, student enrollment down 8,000 statewide this year and agriculture output threatened by a serious drought, the state’s problems have only been increasing in recent months.”

“What pushed Katharine Pratt over the edge was when her property taxes doubled. ‘I felt I was never getting ahead,’ she said. ‘It drove me out of my hometown.’”

“Carol Hunewell, a Fort Myers resident, is biding her time until she can leave for Massachusetts or California. ‘You own your home, but now you’re renting it with all the additional fees,’ she says.”

“Winnie Nelon, a Massachusetts snowbird and founder of Homeowners Against Runaway Taxes, said about 10 tourists came up to her at the Winter Fest on Anna Maria Island this month and said they were thinking of buying here until they looked at the costs of property taxes and insurance.”

“‘Now they are looking elsewhere,’ Nelon said.”

“‘My advice would be to stop talking about the perceived problem, because I see it as self-correcting,’ said Manatee County Commissioner Joe McClash. ‘Now that property values are coming down, property taxes will come down, too.’”

The Daily Report from Georgia. “The two most important factors necessary to ensure a successful resurgence for downtown Atlanta—drawing more residents and retail—have evoked a sort of chicken-and-egg dilemma among the central city’s boosters and business owners.”

“‘If people expect a certain amount of amenities like restaurants, drug stores and nail salons that you would expect for a 24-hour city then they won’t want to move [downtown]—and the retailers won’t want to invest in a market until the numbers are there, until the people are there,’ said Whitney Rusert, president of the Atlanta Downtown Neighborhood Association.”

“Twenty-six of the projects that are under construction, planned or part of a multiphase development will have residences, contributing to the more than 11,000 new households with an average of one or two people the analysis states are expected to have moved downtown between 2000 and 2012.”

“With more, higher-priced living quarters available, the average income of new downtown households is expected to increase from $61,000, the average in 2000, to $71,000 by 2012, the RCLCO report stated. The expected household income increase is key to attracting the ‘proper retail for the market audience,’ said Ellen Mendelsohn, a project manager with CAP’s economic development department.”

“The CVS is the only drug store downtown. There currently isn’t a major grocery store downtown either. The last grocery store downtown, a Kroger located across from City Hall, closed in 2005 after a decade-long run. The 13,000-square-foot supermarket was set up as a ground retailer for the City Plaza apartment complex at Central and Trinity avenues. The storefront is now a haven for homeless people.”

“‘Amenity wise, it would be a challenge to live downtown,’ said restaurateur Bob Amick, who believes this will change.”

“Emory Morsberger, whose company, The Morsberger Group, is interested in revitalizing the newly branded Railroad District in south downtown, said he invested in the central city because ‘much better values exist in the downtown submarket.’”

“‘In real estate, it’s hard to make money when you are buying at the top price right off the bat. … I was amazed at some of the prices we were able to get buildings for in Atlanta—there’s a desire to be downtown—not everyone can afford a $500,000 condo in Buckhead,’ said Morsberger.”

The Times News from North Carolina. “It’s not just high dollar homes that are sitting on the market longer due to the rapidly deflating housing bubble. Projects such as Brickton Village, an affordable condominium development under construction in Fletcher, have also felt the slowdown.”

“The development has sold 75 of its first 168 units, which are priced from $94,000 to $130,000, since starting sales nine months ago, developer Rod Hubbard says. He compared that to his other development, the Grove at Appledorn in Asheville’s Shiloh community. There he built 168 units selling for $69,000 to $130,000 three years ago.”

“‘When I did this in Asheville, I was sold out before I went vertical (with construction). That is how serious the difference in the real estate market has become,’ Hubbard said. ‘And I’m selling a product that is superior to what I was building in Asheville.’”

“Because of the slowdown, Hubbard wants the Fletcher Town Council to allow him to revise his plans for a second phase of Brickton Village. Instead of an additional 200 for sale units as originally planned, he wants the town to permit him to build more than 340 units, and the flexibility to rent rather than sell them.”

“‘We agreed on a project to be bought and owned by the individual. Now the concern is, is it going to be for rent?’ Mayor Pro Tem Eddie Henderson said. ‘I prefer this development to be as it was in June.’”

“Hubbard responded: ‘Well, I do too. I’ve just invested $18 million in a product here and I’m just 50 percent sold out,’ he said.”

“Western North Carolina, with its mountain views and desirability, is sheltered from the full brunt of the poor housing market nationwide but not immune, he said. ‘Let’s be serious, things have burst. It is not raining but it is sprinkling,’ he said.”

The Rocky Mount Telegram from North Carolina. “North Carolina had for months, to some extent, resisted a national trend that has led to a record-setting downturn in the housing market. According to a recent report, though, the state – the Twin Counties included – may be giving into the pressure.”

“Foreclosure activity in North Carolina grew 10 times faster than the national average in October, according to RealtyTrac. The rate was up nearly 150 percent compared with October of 2006.”

“Wachocia has been forced to foreclose upon more North Carolina properties than in years past, most notably near Winston-Salem and Charlotte, according to a bank representative.”

“‘After the flood, a lot of people went out and purchased these nice, big houses,’ said Deputy Tax Collector Tarasa Lewis, who specializes in delinquent tax collection. ‘They didn’t take into consideration that their tax rates would be higher and not all of them have been able to afford it. That accounts for a lot of the properties the county forecloses on.”

“‘It’s not what we want to do, but it’s what we need to do,’ Lewis said.”

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